February 2020 – CGT – tightening up on homes

Author: Mitchells Roberton
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  • The Bullet Point Update (“BPU”) for October 2018 flagged up some forthcoming changes to do with capital gains tax (“CGT”) on a sale of residential property by individuals.
  • Those changes are now almost upon us in that they’ll have effect from 6th April. So this BPU recaps and expands on what the changes are.
  • Of course, if you own a house and you live in it as your “only or main residence” throughout the time you own it then generally any gain will be covered by “principal private residence relief” (“PPRR”). But if you only live in it for part of the time you own it part of the gain may be chargeable to tax.
  • The BPU back in 2018 gave an indication of the changes as follows:

The … changes are, in the words of the October 2018 Budget document (para. 3.41):

“(1)        To better target private residence relief at owner occupiers, from April 2020 the government will reform lettings relief so that it only applies in circumstances where the owner of the property is in shared occupancy with the tenant.”

and

(2)          “The final period exemption will also be reduced from 18 months to 9 months.” 

  • Importantly, there will also be a requirement that if you sell (or gift) a residential property (e.g. a let property) any chargeable gain must be reported to HMRC within 30 days.
  • Something is said about each of those changes under separate headings: (1) lettings relief, (2) final period exemption and (3) 30-day reporting.

(1)          Lettings relief 

  • This relief may apply where an individual sells a property that has been their main home but which has also been let out for a time.
  • The current rules can exempt up to £40,000 of any gain on a disposal of the property.
  • But, as from 6th April, the relief will only apply in situations where the owner of the property is in shared occupancy with the tenant.
  • So, the relief may apply in a case where, for example, a couple own a house and share it with a tenant whose rent helps them pay the mortgage. Such cases may be more common than they once were but will nevertheless be the exception rather than the rule.

(2)          Final period exemption 

  • As mentioned, the starting point is that if you have owned and occupied your home as your only or main residence throughout the time that you’ve owned it then none of the gain is chargeable.
  • That requirement – to have occupied “throughout” your period of ownership  – is relaxed when it comes to the final 18 months.
  • As from 6th April however that 18 month period will be reduced to 9 months.
  • So if, for example, you have bought a replacement home and moved into it before you actually manage to sell your former home that won’t affect your qualifying for the full PPRR – as long as your non-occupation of your former home doesn’t exceed 9 months.

(3)          30-day reporting 

  • Under the old rules if you disposed of a residential property on which CGT was payable you reported this to HMRC on your tax return and tax was payable on 31st January following the end of the tax year.
  • Under the new rules you will have to report it and pay the CGT within 30 days or be liable to a penalty plus interest on late payment of the tax.
  • In outline, you may need to make a report to HMRC and make a payment of CGT when, for example, you sell or otherwise dispose of (i) a property that you’ve not used as your main home, (ii) a holiday home, (iii) a property which you let out for others to live in and (iv) a property that you’ve inherited and have not used as your main home.
  • But no report or payment to HMRC will be required if: (i) you have “concluded missives” for the sale before 6 April 2020, (ii) you qualify for PPRR for CGT, (iii) the disposal was made to a spouse or civil partner, (iv) the gains (including any other chargeable residential property gains in the same tax year) are within your “annual exempt amount” (currently £12,000),  (v) you sold the property for a loss or (vi) the property is outside the UK. 

Note: This material is for information purposes only and does not constitute any form of advice or recommendation by us. You should not rely upon it in making any decisions or taking or refraining from taking any action. If you would like us to advise you on any of the matters covered in this material, please contact Eddie Barry: email Eddie@mitchells-roberton.co.uk

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